Today, the FCA (financial conduct authority), the regulators of the payday loan industry introduced capping on loan rates and charges. This means that lenders will never be able to charge you more than a given % interest per day. In addition to that, nobody will need to pay back more than twice what they borrowed. There is also a cap on the default charge if a payment is missed which as anyone who has ever struggled with repayments knows can be quite a cost in itself.
A full breakdown of the various caps which come into effect from January can be found below –
* A base cap of 0.8% interest per day. As an example, if you took out a £100 loan and paid it back within 30 days that would amount to 80p per day interest or £24 over 30 days. Previously, some lenders charged much more than this meaning that even paying back £100 within 30 days could land you with £50+ of interest to pay.
* A £15 flat default fee. This means that if you fail to pay back your loan within the specified period you will be charged a maximum of £15 flat in addition to your 0.8% interest per day of course. Some lenders currently charge over £25 for each time you miss a payment so this is quite a significant reduction.
* A total cost cap of 100% of the loan. So if you had taken a £100 loan and you happened to default – the total amount you would be forced to pay back would never be more than £200 (100% of the loan value). The interest would of course continue to accumulate throughout the default period but it would only reach a limit of 100% which would hopefully put to an end the issue of interest accumulating for months on end and eventually making the debt unserviceable.
In addition to the above points the FCA have put into place stricter checks during the loan application process itself and have also restricted the extending and rolling over of the loans in general.
But what does all this mean for the actual lenders? Below, we have a table of the Top (20) lenders which shows their current rates and how they will differ come January once the new regulations are in place –
Representative amount, £100 over 14 days.
|Quick Loan Shop||£125.00|
|Wage Day Advance||£129.50|
|Cash Genie Loans||£130.00|
With the new cap regulations in place. The total interest payable on a £100 loan over 14 days would be £111.20. As you can see from the table above, none of the top 20 lenders are currently within the cap and some are significantly over. What this will all mean for the lenders themselves and how they operate only time will tell.